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Perfetti v. Perfetti

Superior Court of Massachusetts, Suffolk, Business Litigation Session

November 19, 2018

Mark P. PERFETTI
v.
Renato J. PERFETTI, Individually and as Trustee of the Renann Trust, Christopher J. Perfetti, John W. Perfetti, & Ideal Instrument Co., Inc.

          MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS’ MOTION TO DISMISS

          Janet L. Sanders, Justice of the Superior Court

         This is a dispute among family members who are also members of a closely held corporation, Ideal Instrument Company (Ideal). The plaintiff Mark Perfetti (Mark) holds a 20 percent interest in Ideal. His brothers, the defendants Christopher Perfetti (Christopher), John Perfetti (John), and Renato J. Perfetti (Renato) each have a 26.67 percent interest. Renato also serves as trustee of the RenAnn Trust, which owns the property where Ideal is located and leases the property to it. Mark is one of the Trust’s beneficiaries. Counts I and II of the Amended Verified Complaint (Complaint) allege that the defendants have breached their fiduciary duties, both to Mark and to Ideal. Counts III seeks an accounting, and Count V asks for the appointment of a receiver. Count IV is asserted against only Ideal and states that it is brought by Mark, both individually and derivatively "on behalf of all beneficial owners and/or the RenAnn Trust." This Count is based on allegations that the Trust should have charged Ideal more in rent; it purports to seek back rent from Ideal and an order of possession.

         Defendants now ask this Court to dismiss Count I of the Complaint because this claim can only be asserted derivatively. As to Count II, defendants argue that plaintiff has failed to satisfy the demand requirement of G.L.c. 156D, § 7.42. As to the remaining claims, defendants contend that they fail to state a claim upon which relief may be granted. This Court concludes that the Motion must be Denied except as to Count IV, which must be dismissed pursuant to Rule 12(b)(6), Mass.R.Civ.P.

         BACKGROUND

         Read generously, the Complaint contains the following allegations. Ideal was founded by the defendants’ and the plaintiff’s parents in 1967. When they died, their shares in Ideal passed equally to their four sons. Ideal is located in Canton, Massachusetts on property owned by the RenAnn Trust. Renato is trustee of the Trust and is named as a defendant both in his individual capacity and in his capacity as the trustee of the Trust. Mark is one of a Trust’s beneficiaries.

         In 1991, Mark left his employment at Ideal and sold five percent of his shares equally to his three brothers. He continued to serve as officer and director of Ideal with his brothers until 2004, when he was removed by a majority vote. Renato is and has been the President and Chief Executive Officer of Ideal and is responsible for the company’s daily operations. Christopher is and has been Ideal’s Treasurer and Chief Financial Officer, responsible for managing its finances.

         Despite operating at a substantial annual profit, Ideal has not paid any dividends to shareholders, including Mark. The Complaint alleges that this is because the defendants have paid themselves excessive salaries, bonuses, and benefits. More recently, Ideal set up a profit sharing plan for Renato and Christopher with money that should have been made available for dividends. Finally, Renato in his capacity as trustee of RenAnn, set the rent that Ideal had to pay the Trust at an artificially low value. This caused harm to Mark as a beneficiary of the Trust.

         In a letter dated October 5, 2016, Mark’s attorney wrote a letter to the defendants regarding the matters discussed above. See Exhibit A to Complaint. It alleged that the defendants had frozen out Mark in breach of their fiduciary obligations. It also alleged that the Trust set the rent that Ideal had to pay at an amount below market levels so as reduce any distribution that Mark received from the Trust. The letter demanded Ideal’s financial records pursuant to G.L.c. 156D, § 16, only some of which have been produced.

         The defendants responded by making an offer to plaintiff to purchase his shares in Ideal and his interest in the Trust. This offer was for an amount and reached by a method that was "unfair and deceptive." Mark’s attorney sent a second letter to the defendants on July 14, 2017. See Exhibit C to Complaint. This letter rejected the offer, made a counteroffer, and repeated the claim that the defendants had frozen out Mark. This lawsuit ensued.

         DISCUSSION

         Count I alleges that the defendants breached their fiduciary duties to Mark. Defendants argue that this claim, however, may only be brought derivatively, on behalf of Ideal. As the SJC has explained, a derivative action seeks to redress a wrong to the corporation; the individual shareholder is affected only indirectly, in proportion to his or her ownership of corporate stock. International Brotherhood of Electrical Workers Local No. 128 Benefit Fund v. Tucci, 476 Mass. 553, 55-558 (2017). Where the shareholder plaintiff is seeking redress for an injury distinct from the injury suffered generally by all shareholders as owners of corporate stock, then the claim is a direct one. Id. In cases where the dispute is among members of a close corporation, that definition can be hard to apply, however. Often, the injury suffered by the shareholder plaintiff is the direct result of some benefit that the other shareholders have obtained for themselves at the plaintiff’s expense. Because of the difficulty in discerning whether a claim is direct or derivative in the context of a close corporation, courts have often allowed plaintiff to plead both. See e.g., Brodie v. Jordan, 447 Mass. 866, 869-70 (2006); Crowley v. Communications for Hosps., Inc., 30 Mass.App.Ct. 751, 752-66 (1991). In any event, the key substantive difference between them lies in the recovery: if the action is ultimately determined to be derivative, then recovery would be by the corporation, with the defendant shareholders sharing in the recovery. That is an issue that can be easily deferred.

         In the instant case, defendants argue that the Complaint essentially asserts a claim for excessive compensation or mismanagement of corporate assets-claims which can only be asserted derivatively. See e.g., Bessette v. Bessette, 385 Mass. 806, 809 (1982) (right to recover overpayment of salary is one that belongs to corporation, not individual shareholder); see also Rubin v. Murray, 79 Mass.App.Ct. 64, 80 (2011). Plaintiff has alleged more than that, however. Specifically, he asserts that defendants have set up a profit sharing plan at his expense and that they have frozen him out of the business. See Donahue v. Rodd Electrotype Co., 367 Mass. 578, 579, 600 (1975). He also alleges that they engaged in unfair and deceptive behavior in the manner in which they made an offer to purchase his interests in Ideal. Finally, there are the allegations pertaining to the rent charged by RenAnn Trust. Those are claims that may be asserted directly. In short, although the Complaint is certainly not as clear as it could be as to the contours of these claims, this Court concludes that there is enough there to plausibly suggest that plaintiff does have a cognizable claim that can be brought directly and not just derivatively. Count I therefore survives.[1]

         Count II is asserted as a derivative claim. As to this count, defendants contend that it should be dismissed because defendants have not satisfied G.L.c. 156D, § 7.42. That statute states that, before a shareholder can commence a derivative proceeding, he must made a written demand upon the corporation to "take suitable action." In most cases, and as a matter of good practice, the written demand letter should be addressed to a corporation’s board of directors. G.L.c. 156D, § 7.42, Comment 2. It should also be sufficiently specific to apprise the corporation of the act or omission to be challenged, the grounds for that challenge, and the relief requested. G.L.c. 156D, § 7.42, Comment 1. Plaintiff argues that this demand requirement has been satisfied, citing the 2016 and 2017 letters, attached to the Complaint as Exhibits A and C. This Court concludes that these two letters provided Ideal (and its Board of Directors, the three defendants) with sufficient notice of Mark’s potential claims, both direct and derivative.

         Count IV purports to be a claim for "back rent and possession" and is asserted against Ideal. It rests on the allegation that the defendants conspired together to have Ideal pay less than a fair market rent to the Trust; with less money coming into the Trust, this caused damage to the plaintiff as a Trust beneficiary. To the extent that this was conduct in breach of the defendants’ fiduciary duties, that is already part of Count II, however. Apart from that, this Court sees no legal basis for plaintiff’s ...


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